IM for Lovelock & Wirtz, Services Marketing 6/E Teaching Notes for Cases - Section 5

CASE 18

TLCONTACT: CARE PAGES SERVICE (A)

OVERVIEW

Three family members launched an Internet startup company just before the “dot.com
bubble” burst in 2000. The product is a web-based service that enables hospital patients
to stay in touch with family and friends through the medium of individualized home
pages, typically linked to a sponsoring hospital’s own web site. Three years after the
launch, the company is finally becoming profitable and the CEO is reviewing strategy for
future growth.

TEACHING OBJECTIVES

• Demonstrate the tremendous amount of time and effort that needs to be invested
in developing, maintaining, and evolving a functional, foolproof, and user-
friendly web site

• Illustrate need to evolve a start-up company’s business model and sales strategy in
the light of experience

• Highlight the difficult, time-consuming nature of marketing a new concept in a

B2B environment, including the need for missionary selling to skeptical
purchasers

• Explore creative opportunities to leverage sales efforts

• Discuss the constraints and opportunities posed by operating under high ethical
standards

STUDY QUESTIONS

1. Evaluate the evolution of TLC and identify the key decisions that kept it afloat and
underpinned its subsequent success.

2. How does TLC create value for (a) patients, and (b) hospitals?

_______________________________________________________________________
_

© 2007 Christopher H. Lovelock

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3. Review the four topics on Eric Langshur’s draft of the agenda for the board meeting.
As a board member, what position would you take on each topic, and why?

ANALYSIS

1. Evaluate the evolution of TLC and identify the key decisions that kept it
afloat and underpinned its subsequent success.

Time Line of Case (Key decisions identified with boldface)

February 25, 1998 Eric and Sharon (Day) Langshur’s son Matthew born in Hartford,
CT with heart defect

March 2 Matthew has first operation at U. of Michigan Medical Center

Early March Mark Day (Sharon’s brother) creates simple web site at
Stanford

1998–99 Matthew has two more surgeries; more than 200 people visit the
website and return many times

Late 1999 Langshur quit jobs in Chicago to start company to

commercialize the concept, quickly and easily raise $3 million
in “angel” financing; Eric is CEO, Sharon is director of medical
services

January 2000 Mark Day joins team as Chief Technology Officer, decides to
build website in-house; team is expanded to include other staff

August 2000 TLC website is launched and continuous improvements made

thereafter

Summer 2000 Additional financing obtained; TLC revises business model to

B2B, targets marketing/PR hospital staff, adopts missionary
sales approach

Early 2001 Contracts signed with three prestigious hospitals: U. of Michigan

Medical System, NY Presbyterian, Children’s Memorial Chicago

Fall 2001 TLC is running out of cash—dot.com crash environment means no

longer possible to raise money for seed-stage Internet company
without cash flow

2002 Competitor, BabyPressConference shuts down; TLC reaches

agreement with CHCA—buying consortium for 38 children’s
hospitals; direct-to-hospice co-marketing initiative launched with

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National Hospice and Palliative Care Organization; paid pilot

program launched with Tenet Corp., operator of 116 acute-care
hospitals; Spanish language option developed through
collaboration with Mexican hospital

June 2002 Mark leaves TLC to enroll in Wharton MBA program

Fall 2002 New feature, online survey capability added to Boston

Children’s Hospital site—useful feedback about value of service to
users; pilot donation programs at two hospitals suggest TLC
service increases willingness of users to donate money to
sponsoring hospital—could make service self financing

Late 2002 Lead time on new sales has dropped from nine months to three
months

Q1 2003 Revenues accelerating rapidly, more customers sign up, existing

customers renew, increased CarePage utilization/hospital; TLC
now serves 40 hospitals in United States and Canada, mostly
academic medical centers (acute care, state-of-art medicine, very
prestigious); additional hospital prospects in pipeline but no
nursing home or hospice customers; TLC responds to SARS crisis
in Toronto, where several hospitals have been quarantined, by
offering 24-hour implementation of CarePage service at a special
price

Q2 2003 Eric Langshur plans agenda for board meeting

Genesis of the Concept

The TLC concept originated as a brother’s response to a devastating medical problem

affecting his sister’s new baby. The challenge: To employ evolving website technology
(1998) to keep everyone up to date on the baby’s progress and thus save the parents from
having to repeat the same information over and over again by telephone to concerned
relatives and friends. The original simple website (which would have cost only a few
hundred dollars if Mark had paid someone else to build it) included:

• Bulletins on baby Matthew’s progress

• Background medical information

• Bulletin board for family and friends to post messages

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Key results:

• News of the site spread by word of mouth

• Individuals who had never used the Internet before were motivated to find a way
to access the site

• 200 people in total used the site—that’s a lot of friends and family!

• People revisited the site on a regular basis to get updates

• Site remained up for two years (Matthew had three rounds of surgery)

• Parents were spared massive amounts of time responding to phone calls with
same information

Success of this concept led to decision to commercialize it. Note that each of TLC’s
competitors was started by individuals who had created family websites for similar
purposes (pp. 624–625).

Evolution of Business Model

TLC was launched in an “intoxicating environment” with what proved to be unrealistic

expectations of rapid growth. The business model and selling procedures all had to be
modified (pp. 619–20):

• Business Model 1.0: B2C, target prospective parents, families of hospital patients
and charge them a fee per page. But too expensive, too difficult to reach these
individuals.

• Business Model 2.0: B2B, target hospitals (who would then offer service to
patients—perhaps at a fee); sell to physicians. Problem, doctors don’t have time to
listen or budget to buy; are busy with patient care.

• Business Model 2.1: Target PR and marketing groups within hospitals—have

budget, more likely to see advantages for hospitals in terms of increased patient
satisfaction. Problem, don’t want to charge patients for a service designed to
increase their satisfaction (e.g., TV).

• Business Model 2.2: Get hospital to pay and offer service free to patients. Problem,
hospital administrators couldn’t see appeal to patients or advantages to hospital—
required missionary sales approach which had to target multiple individuals
holding a variety of other jobs within a broader decision-making unit.(e.g.,
finance, nursing, IT)

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Missionary Sales Approach

TLC had expected service to sell itself (better mousetrap fallacy). Now had to switch to
missionary sales approach, emphasizing:

• Advantages to hospital include more satisfied patients, fewer demands on hospital

staff as family and friends turn to website rather than phoning hospital for
information

• Findings of national survey of patient satisfaction which showed that:

− 27 percent reported lack of emotional support

− 28 percent cited inadequate information and education
− 23 percent complained of insufficient involvement of family and friends
− patients receiving inadequate emotional support were up to ten times more
likely to say they would not return to/recommend that hospital

Investment in Systems Design

TLC decided to build the website themselves rather than subcontract which would:

• Retain intellectual capital

• Make it easier to undertake future updates and expansion

• Mark Day’s experience with original site gave him clear idea of how it should be
built, including need for flexibility

TLC was willing to invest heavily to get its own systems up and running fast. Worked
hard to ensure system and software were:-

• Usable (user friendly)

• Functional (does what it’s supposed to do)

• Scalable (can be expanded and built upon without failing)

Chose to employ open source-operating system because source code was freely available.

Regularly updated, revised, fixed problems, enhanced functionality, added new features,
including email notification to members of updated news.

Customized pages for hospitals so that they were branded with hospital logo and
accessible through hospital website, even though loaded on TLC’s own servers.

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Included software logic to fix common mistakes that users might make. Note people
accessing medical bulletins of loved ones are likely to be nervous and often infrequent
users of keyboards and websites, so more prone to make mistakes—will appreciate user-
friendly, “forgiving” website. This type of innovation is expensive.

Marketing Strategy

• Offer hospitals stand-alone service positioned as e-business patient satisfaction

solution

• Rely on viral marketing among families and friends to promote TLC through
word-of-mouth referrals and thus avoid need for mass media marketing

• Outsource direct sales to a national distribution partner that has relationships with
hospitals and health care facilities

• Licensing TLC software to trusted third party vendors and consultants who could
bundle TLC services as a feature to enhance their own offerings, in return for a
royalty

• Seize opportunity presented by SARS crisis that quarantines several Toronto

hospitals to offer special rate Care Page service with only 24-hour notice

2. How does TLC create value for (a) patients, and (b) hospitals?

Value for Patients (and their families)—See feedback in Exhibit 2

• Emotional support—keep in touch during illness and recovery

• Save time, reduce stress for family—avoid need to repeat same information many
times

• Ensure accuracy of information about patient

• Get new info out quickly to everybody

• Offer potential to link to expert information about the patient’s medical condition

• Facilitate support networks, build bonds with family, friends, and community

• Uplifting for family, patients to read all the messages—may even speed recovery

• Generate spiritual support through prayers

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• Include pictures

Value for Hospitals (Note Case Exhibit 3, especially)

• Competitive advantage:

- Increased patient satisfaction is a competitive advantage

- Former patients more willing to return
- Positive word of mouth by both patients and “members” generates referrals

• Productivity tool—saves staff time and effort of responding to requests for info on
patients

• Motivational tool—TLC offers potential for patients and CarePages members to

nominate outstanding hospital staff; knowledge that hospital is well regarded may
increase retention and motivation, facilitate recruitment

• Image booster for hospital—May be able to get local PR when TLC service first
installed; CarePage members are impressed (see responses to question 4 of visitor
survey, Case Exhibit 3, p. 623)

• Educational tool—potential for hospital to send messages to CarePage members

on permission basis—note responses to Exhibit 3, q. 2, p. 624

• Donation booster—satisfied “members” (visitors to CarePage) more willing to

make donations (see p. 622 and Exhibit 3, responses to question 4, p. 623).

3. Review the four topics on Eric Langshur’s rough draft of the agenda for the
board meeting. As a board member, what position would you take on each
topic, and why?

Future Growth

a) How fast?

The rationale for growing fast is to penetrate the market as deeply as possible before
current or new competitors can do so. The risk facing any small business with limited
capitalization is that expenditures will rise faster than income and it will become
insolvent.

b) What directions?

TLC has to decide whether to emphasize CarePages versus HTN or to try to run both
in harness simultaneously. It also has to decide whether to stick with the current
offerings or to actively pursue a strategy of product enhancements, even an expansion

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of the product line. Finally, it has to decide how much emphasis to devote to Canada,
Mexico, and (potentially) other Spanish-speaking countries relative to the United
States.

c) Key targets as selling priorities?

Bigger hospitals have more beds and therefore more patients. Acute care hospitals
have sicker patients who will be in hospital and recuperation longer and whose
friends and families will be more worried about them. Hospitals with substantial
obstetrical beds will have larger numbers of babies being born.

d) Opportunities for new value-added services?

CarePages already are available in Spanish and will soon be available for sale to U.S.
hospitals for an extra fee. Maybe TLC should also consider French? But this
represents a much smaller market (Canada’s population is 33 million, about the same
as California’s, and only 20–25 percent are French speaking). This option would have
only limited appeal in the United States where the primary French speaking
immigrants are Haitian, many of whom prefer to speak and write Creole—effectively
a different language. Under development are:

• Refined procedures for surveying members (visitors) after they have completed a
certain number of visits (useful for feedback, fundraising)

• Nurses Hall of Fame (helps hospitals with hiring—presumably by highlighting that

this is a good place to work—and retention [pride?])

• Message inbox allowing hospitals to deliver targeted messages to members (would

require permission from members but, if given, could help with fundraising and
word-of-mouth promotions; TLC would need to specify content parameters

• Send-a-Prayer—functional link to faith-based organization (would certainly appeal

to some members—note religious content in four of ten feedback messages in the
Appendix; question: Should TLC control list of “appropriate” faith-based
organizations? Could be tricky.)

e) Launch stripped down TLC at much lower price?

• Might help TLC gain entry to cash-strapped hospitals, nursing homes, hospices

• Issues:

− Would there be any significant savings for TLC in stripping out certain
features? (Probably minimal because main costs of features are in
development.)

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− Risk: buy market share by deep discounting that can’t easily be reversed in
future years

− Product will be less appealing—fewer functions for members and sponsors

− Existing customers might wonder why they are paying so much more and use
this fact as a bargaining chip at renewal time

− May lower barriers to competition, bring TLC down to TheStatus and

CaringBridge levels. Note failure of VisitingOurs, provider of “a rather basic
service”

− Eric believes “added value items are what persuade hospitals to buy” (p. 622,
col. 2)

Competition

a) VisitingOurs folds. Good riddance to another competitor, which joins Baby Press
Conference on the trash heap! Is there anything to be learned about this latest failure?

• A rather basic service (less demand for the basics?)

• Outsourced web technology (probably less innovation, less learning from

experience, risk of poorer quality, owners divorced from interface with
customers).

b) Comparison chart of TLC vs. TheStatus and CaringBridge (Case Exhibit 4).

TheStatus (TS) is run as sideline of Web design company in Alaska. How seriously will
prospective hospital customer take them? How effective can their sales effort be?
CaringBridge (CB) runs by nonprofit. May have lower prices but how much can they
afford to invest in upgrades and innovation?

TLC offers:

• Highest levels of customer service. TS is close but lacks Spanish language, CB is

weak.

• The most feature rich service for health-care facilities—the only one with
welcome message, active survey, and donation systems, Spanish language, and
unit specification. TS is next best. CB is very weak.

• Branding. TS is the only one with the entire website co-branded (but is this what
hospitals want?). TLC is the only one to offer customized colors and graphics
(more bells and whistles).

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• TLC offers the most features for patients. Unique advantages include email
notification (when a new bulletin is posted for a patient, all registered members
are told there’s an update), sorting and paging. TS is second, CB a distant third.

• Message board. Only TLC offers opportunity for patient (or family member) to
respond to messages.

Future threats?

CB looks very weak and will probably be the next to go. Perhaps its owners might sell
the system to someone with deep pockets who would be willing to invest in it. TS would
be a better buy for such a party in terms of offering more features. (Note no one wanted
to buy BabyPressConference when it went under.) The potential market is huge, however,
TLC has only a tiny share, and the investment required would be very modest for a major
player in the health care market. Instead of selling the service to hospitals, a large health
products firm could offer its own service free, either self-branded or co-branded with the
hospital (“sponsored by ABC pharmaceuticals”) and develop the membership list, with
permission, as an advertising channel.

Would competition hurt us?

Probably not. It would be easier for a competitor to target current non-users than fight to
take one of TLC’s existing customers away at renewal time. In a mature market, new
sales can only be gained by drawing share from other competitors. In a market with huge
latent potential, stimulating primary demand is the issue (note from p. 6 that there are
6,000 acute care hospitals in the United States, 17,000 nursing homes, and over 3,000
hospices) Competitive activity will generate more awareness and could help to establish
the legitimacy of this type of service. (Note FedEx created the overnight package delivery
business, but subsequent competition from UPS, DHL, Airborne, TNT, and the postal
services helped expand the market rapidly and all parties grew sales as a result). The
main risk would come from a competitor who provided a similar service at a much lower
cost, forcing TLC to drop its prices.

Can we competition proof TLC?

Can’t prevent entry of deep-pocketed new competitor from entering, although it would
take time to develop necessary software, systems and infrastructure (could outsource, of
course). Could probably work around patent protection. Eric thinks TLC’s best defenses
are:

• Strategic partnerships

• Continued growth (a long way to go!)

• Product enhancements

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• Maintenance of exceptional customer satisfaction levels

• (Could also add high ethical reputation)

Possible Financial Partnership

A large supplier of medical equipment and services is interested in taking a minority

financial stake in TLC.

Finance for accelerated growth?

This is obvious motivation and would allow TLC to sharply increase its selling effort.

Market leverage?

• A powerful financial partner might be able to open doors to prospective new

customers

• Add to TLC’s credibility—no risk of them disappearing in a year or two like

BabyPressConference and VisitingOurs

• Perhaps opportunity for bundling of sales efforts (medical supplies plus TLC
products)

Pros and cons?

YES

• Increase selling and preempt competition

• Invest in new product development and enhancement

• Finance HTN programming development

• Help with R&D on new technologies

NO

• Some loss of control, even with minority shareholder who may want full control
later

• Potential for disputes—what happens if partnership breaks up?

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• Will there be pressure to abandon TLC’s very ethical positions on “permission”

marketing, “moral contract” with patients and families

Now or later?

• What’s the rush? Sales are accelerating and TLC is about to become profitable.
No new competition on horizon to stimulate drive for preemption of market.

• May be able to finance growth out of income.

• If waits to sell a stake later, may get more money for a smaller share of equity.

• If TLC feels it really could use more funds to advance market penetration of
CarePages, how about selling HTN?

WE ARE A MISSION-DRIVEN ORGANIZATION

TLC operates to very high ethical standards. This appears to be very important to its
owners and doubtless builds respect and credibility among hospitals and trust—even
affection—among users who are sure to spread positive word of mouth and even reward,
with donations, sponsoring hospitals. TLC must be very careful not to compromise its
values by partnerships with organizations that have dissimilar perspectives, by added-
value services that take advantage of patients, or by relaxing its permission marketing
strategies.

TLC’s high standards also make it easy to meet provisions of the Health Information
Privacy and Accountability Act (HIPAA) and the demanding requirements of the
TRUSTe Privacy Seal (p. 3).

TEACHING SUGGESTIONS

Students enjoy this case. They are touched by the story of how the idea for the service
was first developed for the family of a desperately ill baby. They enjoy the interesting
backgrounds of the founding family (Eric the whiz MBA, Sharon the MD, Mark the PhD
student, and even the famous Wharton marketing professor, George Day, as advisor. And
they shake their heads at the giddy atmosphere prevailing in the last months of the
dot.com boom, with investors offering millions of dollars for sketchy business plans,
owners of inactive domains wanting $2 million for the name, and huge fees being
demanded for technology consulting. You might want to cite all of these as you introduce
the case at the beginning of class in order to build energy and enthusiasm.

At some point in the class, you should discuss the website itself and the efforts that Mark
Day and his colleagues made to ensure user-friendliness, functionality, and scalability.
Ask how many have visited www.tlcontact.com and how many read the privacy

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statement. Why does this matter and why does TLC place such emphasis on it? Ask, too,
if anyone has used CarePages to follow a patient’s progress. If so, get them to talk about
it for a minute or two.

The case is easy and straightforward to teach. You need to budget your time on each of
the questions. The discussion of the business model and how it evolved has important
lessons for any start-up, as does TLC’s experience in trying to sell to hospitals and having
to shift its approach, first as they recognized that doctors were the wrong target and
second, as they realized that hospital administrators simply didn’t understand the benefits
of the CarePage product.

Although the case contains no financial statements, it is clear that cash flow was a very
significant problem for TLC. Point out that missionary selling efforts are often needed for
new services and it may take a while before prospective purchasers recognize a value that
the originators of the product thought was quite obvious. You can tell students that it took
FedEx three years to become profitable, because traffic managers in the early 1970s
could not see the benefit of guaranteed overnight service and were very slow to adopt the
new concept.
.
You should budget at least 15 minutes, possibly more, to discuss the four points raised in
question 3. This teaching note provides a fairly detailed analysis of each point and sub-
point. You may wish to ask students to vote on such issues as:

• Whether to offer a stripped-down CarePage service at a reduced price

• Whether to accept the offer of the medical equipment and services supplier to
purchase a minority share in TLC right now

SUBSEQUENT EVENTS

TLC has made huge strides since the time of the case and by 2006 had more than 400
hospitals as customers. New customers continue to be acquired, old ones renew with
enthusiasm, selling costs are down because the task is now easier, and CarePage volume
continues to rise within existing institutions.

Possible Financial Partnership. TLC turned down the medical supplier’s offer to invest
in the company in return for a majority share.

Mark Day. Following graduation from Wharton in May 2004, Mark Day has gone to
work for a company in Minneapolis. He says his experience at TLC was invaluable and
the insights he developed there complement his MBA skills very well.

Other Markets. CarePages was moving into the long-term care (nursing home) and
hospice care markets, seeking to gain experience, and exposure with a limited number of
contracts.

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Competition. In May, 2004, competitor CaringBridge pulled off a remarkable PR coup,

being featured on three consecutive days in the Doonesbury cartoon strip. However,
CaringBridge remains relatively small (it is believed to have about 50 institutions as
customers) and CarePages dominate as market leader.

NOTE: A SEQUEL CASE, TL CONTACT: CAREPAGES (B), IS IN PREPARATION

AND WILL BE POSTED TO THE BOOK’S WEBSITE—PLUS TEACHING NOTE
—ON COMPLETION

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